In a judgment of the Court of Appeal for Arnhem-Leeuwarden dated 24 November 2015 (published on 4 December 2015), the Court assessed the criteria for the existence of an employment relationship. This issue is particularly topical at present, partly because the (model) agreements approved by the Tax and Customs Administration – which are set to replace the VAR – stipulate that one or more of these criteria are not met, with the result that an employment relationship does not exist (see, amongst other things, our article VAR Transition Plan – approved model agreement). If there is no employment relationship, no payroll taxes need to be withheld or paid.
The criteria for an employment relationship are as follows:
1. The contractor must be obliged to personal to carry out the work;
2. against a reward;
3. in a employment relationship.
The case before the Court concerns Slovakian steel fixers who entered into a contract for work with a subcontractor. The Tax and Customs Administration takes the view that this constitutes an employment relationship. However, the Court found that, although under the terms of the contract the Slovaks were only permitted to be replaced with the express consent of their client, in practice such consent was never sought, as the client’s sole concern was that the work be completed on time. There was therefore no obligation to perform the work in person.
Although the foregoing alone does not establish an employment relationship, the Court also considers that there is no relationship of authority, as the Tax and Customs Administration cannot identify which of the client’s employees gives instructions to the Slovaks. Supervision of the steel fixers’ work was carried out by the main contractor.
Another factor to which the Court appears to attach importance in this case is the finding that the same work as that carried out by the Slovaks is carried out by Dutch steel fixers who hold a VAR (declaration of employment relationship).
Another important aspect in this case is the allocation of the burden of proof. This rests with the Tax and Customs Administration, which, in the Court’s view, has failed to provide sufficient evidence to support its arguments in this case. The allocation of the burden of proof means that, as soon as there is any doubt regarding a position taken by the Tax and Customs Administration, this works to the Tax and Customs Administration’s disadvantage.
The above criteria relate to genuine employment. In addition, the regulations recognise a number of deemed forms of employment. The Court ruled that there is no question of deemed employment, as it has not been demonstrated that the Slovaks are under an obligation to carry out the work in person.